Sears' Decline Actually Demonstrates Amazon's Vulnerability
Those who fear Amazon is on the verge of becoming a monopoly that eats all competitors and locks up the retail market should take note of an announcement last week by Sears Holdings: The company will be closing another 100 stores this year.
Some will see Sears’ downward trajectory as proof that Amazon is on the verge of assuming near-monopolistic dominance of the retail market. In fact, it proves the opposite: No one can blithely assume that kind of power, at least not for long. Just look at Sears’ history: Back in the 1960s, many feared the Sears chain would mow down all that stood before it, with sales revenue that equaled 1 percent of U.S. GDP – more than Amazon’s sales do today.
Sears’ fate – after closing another 400 stores last year – illustrates the fact that yesterday’s economic tiger could become tomorrow’s economic pussycat. That’s true in all industries, including (perhaps especially) retail.
Many argue that Amazon is eliminating jobs and diminishing once-thriving shopping districts by drawing customers and revenue away from bricks and mortar institutions. But appeals to community loyalty will not undermine consumers seeking the most efficient shopping experience they can get. Cursing the rise of ecommerce is really nothing more than cursing the proliferation of consumer choice and convenience.
The purpose of a market economy is not to preserve businesses or jobs – it is to satisfy consumer needs and desires. The reason we work is to be able to consume. The company that comes up with the easiest, cheapest and most efficient way for us to do that will earn our loyalty – and hold it only until someone else comes up with a better formula.
One should first quickly dispense with the argument that Amazon’s internet-based rise is eliminating jobs. One can only feel sympathy for Sears employees. But Amazon has tens of thousands of job openings across the United States, to help fulfill customer orders. Many economists argue that e-commerce has created more jobs than it has eliminated, largely in customer fulfillment centers, which pay about 25 percent more than retail jobs. In fact, while the Department of Labor recorded a loss of 67.000 retail jobs last year, the Wall Street Journal reports the department didn’t count as retail 74,000 jobs in transportation and warehousing – jobs made possible by Internet shopping. And Amazon has launched a competition to choose a city to host a second headquarters, projected to provide 50,000 six-figure jobs.
But comparing jobs created vs. jobs lost is actually circling away from the heart of the issue: The impact of internet retail on consumers. Consumers are not a resource to be hoarded by existing businesses, and fenced off from new and improved ways of meeting their needs. Producers and retailers are meant to serve their customers, not the other way around. Amazon and other internet-based retailers do well by providing consumers with something they want. By definition, improving the way we engage in commerce is going to change the way we do it – disrupting established markets and allowing entrepreneurs to build new ones. Saying things shouldn’t change is the same as saying they shouldn’t get better.
The internet is not the first vehicle of commerce to transform the relationship between sellers and buyers. Which brings us back to Sears. In happier days for the company, when Sears, Roebuck introduced its first catalogue, it generated as much disruption to the retail industry of the time as Amazon has today. The Sears’ catalogue – known as the “farmer’s friend” because of the convenience it offered rural consumers – no doubt drove many country stores out of business and eliminated many jobs. It aroused at least as much retailer ire as internet companies do today. Many rural newspapers refused to run Sears’ ads, and children were given a dime or a movie admission pass for every catalogue they turned in, which were sometimes publicly burned. But the catalogue became more popular than ever, because it offered consumers a convenient way to access wider range of goods at a lower price. Sound familiar?
Fifty years from now, we may be reading about how a once-great company called Amazon is downsizing. And just like Sears today, many will forget how much the Seattle-based company elevated the consumer experience and changed the nature of retail. Companies don’t grow and grow until they devour all before it. They grow and grow until someone else comes up with a more efficient way of doing the same things they are doing for consumers.